German cabinet approves $52 billion corporate tax relief package

By Maria Martinez

BERLIN (Reuters) -The German cabinet approved a 46 billion-euro ($52 billion) tax relief package on Wednesday to support companies and revive its sluggish economy from this year through 2029, the government said.

The package is the first in a series of expected measures from Germany's new government to boost the economy, which could be facing a third consecutive year of contraction for the first time in its post-war history.

"After just four weeks in office, we are presenting the first important reforms to ensure new economic strength," German Finance Minister Lars Klingbeil said on Wednesday. "We are providing the economy with urgently needed planning certainty and creating strong investment incentives."

The package includes measures such as favourable depreciation options of as much as 30% per year for three years to ease companies' tax burden.

To encourage electric car purchases, buyers will be able to depreciate 75% of the purchase price in the year in which the vehicle is bought. 

"This new depreciation rule provides a welcome short-term stimulus for the manufacturing sector," said Deutsche Bank economist Robin Winkler. "However, its impact on facilitating the broader structural transformation of the German economy is likely to be limited."

U.S. President Donald Trump's tariff policies are expected to hurt Germany's export-oriented economy and its new chancellor, Friedrich Merz, will travel to Washington to meet Trump on Thursday.

CORPORATE TAX CUT

The package also includes a promised one percentage point cut to the corporate tax rate each year over five years from 2028, bringing it down to 10% by 2032.

The package shows the new government's capacity to act, as it moved "swiftly and without disruptive noise," German Mittelstand association DMB President Marc S. Tenbieg said, adding it "creates planning security for those who can currently invest."

Economy Minister Katherina Reiche said there will be further measures to cut energy costs, reduce bureaucracy and speed planning and approval procedures.

The measures will cut government tax revenue by 2.5 billion euros this year, rising to a reduction of 12 billion euros at the peak in 2028, the last year of office for the ruling coalition. 

The package still needs the approval of the lower and upper houses of parliament. 

Germany's parliament approved plans for a massive spending surge in March, throwing off decades of fiscal conservatism. Additional measures, including a 500 billion-euro infrastructure fund, should be brought to the cabinet with the draft 2025 budget on June 24 and the first draft of the 2026 budget on July 30.

The German government is deploying huge amounts of capital into the topic of industrial resilience, Simon Pex, managing director at Carlyle Europe Partners, said.

"The more positive political sentiment in the country might accelerate economic growth in a positive way," Pex said. "Germany could be a good place of opportunity in the next decade."

($1 = 0.8775 euros)

(Reporting by Maria Martinez, Christian Kraemer and Emma-Victoria Farr, Editing by Madeline Chambers, Bernadette Baum and Sharon Singleton)